R.I. budget gets mixed reviews

PROVIDENCE — Depending on whom you ask, the $8.2-billion state budget unveiled and voted on Tuesday by the House Finance Committee either showed great promise or represented a step in the wrong direction...

Comment

By
PHILIP MARCELO AND RANDAL EDGAR
Posted Jun. 20, 2013 @ 12:01 am

PROVIDENCE — Depending on whom you ask, the $8.2-billion state budget unveiled and voted on Tuesday by the House Finance Committee either showed great promise or represented a step in the wrong direction for Rhode Island.

For the business community, it meant new incentives for local defense and manufacturing industries to expand and invest in the state. It meant new programs to stimulate a construction industry still suffering from 40 percent unemployment.

It also meant much-needed tax relief for smaller businesses, including local artists and liquor stores, whose products will now be exempt from the state’s 7-percent sales tax.

Rep. Jan Malik, a Warren Democrat who owns a liquor store, said the change means he will finally be able to compete with stores in neighboring Massachusetts, which has no sales tax on alcohol. “Finally, people will come across the border to come to our state,” he said.

But elsewhere, there were pockets of protests.

Hard-hit cities and towns like Central Falls, Pawtucket, Providence, West Warwick and Woonsocket received less in “distressed” aid than Governor Chafee proposed in his budget submitted in January.

Peder Schaefer, of the Rhode Island League of Cities and Towns, expressed dismay that lawmakers would cut the aid after the league and local officials said it was critical.

“It wasn’t an enormous contribution that the governor proposed, but it was a step in the right direction,” he said. “Now the legislature’s reversed course.”

Aquidneck Island commuters and residents will also be disappointed there was no budget fix preventing tolls slated for the new Sakonnet River Bridge in July. Taxi cab drivers did not see the relief they sought after the state sales tax was imposed on their industry last year.

Instead, those families are expected to purchase their own insurance using government subsidies provided under Obamacare.

Linda Katz, co-founder of the Economic Progress Institute, which advocates for the poor and low-income, called it a “really ill-advised idea” that forces families to pay more in monthly health insurance premiums and thousands in out-of-pocket medical expenses.

The budget for the year starting July 1, approved by the House finance panel Tuesday night, FJ1oy, has a few more steps before it becomes law. The full House of Representatives is slated to debate and vote on it Tuesday before sending it to the Senate and then to the governor for his action.

But first, rank-and-file General Assembly members will be briefed by Democratic leaders on the proposal Thursday afternoon.

House spokesman Larry Berman says the budget scorecard for cities and towns is not as grim as critics portray.

He argues that the budget contains “no reductions” to existing local aid programs and provides “significant new money” to municipalities.

That includes $10 million to launch a new state loan fund for local road and bridge repairs, a $4-million increase to the “payment in lieu of taxes” program that reimburses cities and towns for the tax dollars they do not collect on state-owned properties and a $30-million boost in education aid through the state’s public-education formula.

Still, Chafee spokeswoman Christine Hunsinger said the governor’s budget did more for cities and towns. For example, it would have created a pot of $10 million for local road repairs and distributed it proportionally among the state’s 39 cities and towns.

“What you’re doing is you’re forcing municipalities to borrow, as opposed to the grant program he had set up,” she said. “That would have been direct taxpayer relief, where this will not be.”

Business also did not win all its battles.

It lost out on its big initiative: a push to gradually lower the state’s corporate tax rate from 9 percent to 7 percent.

Laurie White, president of the Greater Providence Chamber of Commerce, concedes that decision was not surprising, considering revised budget estimates showed a $30-million deficit where officials had been banking on a surplus.

Instead, White focused on a proposal allowing companies to accelerate the tax benefit for writing off — or “depreciating” — the cost of assets such as computers and other equipment.

The plan would mirror federal tax law, which allows companies to write off the value of equipment in a single year, rather than over multiple years.

“It’s a way to encourage businesses to continue to make upgrades, which is important in order to stay current and contemporary, especially in a manufacturing scene,” she said.

But not all manufacturers were completely enamored of proposals included ostensibly for their benefit.

The state’s defense industry, including major submarine-maker Electric Boat, pushed hard for a new tax break for manufacturers.

The budget included that plan, as well as a new, $2-million state fund to help defense, biotech and other science-based businesses cover the cost of applying for federal research or innovation grants.

But William McCourt, of the Rhode Island Manufacturers Association, said the requirements to qualify for the manufacturer’s tax break will be tough for relatively smaller manufacturers to meet.

The proposed tax credit — worth $500 off state business taxes for every new worker a company hires — requires that a company, at minimum, invest $10 million in real estate, equipment or other capital purchases as well as create at least 100 new full-time jobs.

“For folks like Electric Boat looking to expand, it’s good, and hopefully they’ll be in a position to take advantage of it,” he said. “But $10 million is a lot for other folks to deal with. It’s helpful, but I don’t think it’s broad enough.”

Construction companies and labor unions representing building trades came out ahead in the budget.

They both advocated for two proposals ultimately included in the House Finance Committee version: a revival of the state historic tax credit for commercial rehabilitation projects and the new loan fund for local road and bridge repairs.

The only major point where the industry and labor unions diverged? A provision included in the historic-tax-credit proposal requiring that construction companies, on projects costing more than $10 million, participate in union apprenticeship programs.

Labor unions have said such programs help train future construction workers; the industry says it will slow down productivity and lead to higher project costs.

“Look, you’re helping the industry with the unemployment, but you’re increasing the cost of the project somewhat,” said Tim Scanlon, a lobbyist for the Construction Industries of Rhode Island, whose members include Cardi Corp. and other major construction companies. “So, it’s a tradeoff.”